If Earnings Reflect a Return Greater Than the Cost of Debt,then

question 94

Multiple Choice

If earnings reflect a return greater than the cost of debt,then ________.

• A)the more debt the company has sold,the worse off the shareholders are
• B)the less debt the company has sold,the better off the shareholders are
• C)the more debt the company has sold,the better off the shareholders are
• D)the more debt the company has bought,the better off the shareholders are

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Definitions:

Call Option

A financial contract giving the buyer the right, but not the obligation, to buy an asset at a specified price within a specified time.

Specific Stock

A particular share or security representing ownership in a company.

Specific Price

A precise cost or valuation assigned to a particular item, service, or financial instrument.

Long-Term Debt

Financial obligations of a borrowing entity that are due for repayment in more than one year's time.